Busting Financial and Banking Jargons: Part 1

A familiarity with technical terms can impress employers and colleagues alike, but it is important that you use them correctly. Here’s Part 1 of gradsingapore’s A-Z jargon guide for graduates to understand key terms used in the financial services and banking industry.

Arbitrage (n.)

What is it?

The practice of making a profit from trading on two markets simultaneously. Such trades profit by exploiting price differences of similar financial instruments on different markets or in different forms.

Example:

If the price of wheat in Indonesia is cheaper than in Singapore, you buy in Indonesia and simultaneously sell in Singapore – earning the difference.

Put in a financial context, for instance, the stock of company X is traded at $10 on the Singapore Stock Exchange (SGE) while it is simultaneously trading on the Indonesian Stock Exchange (IDX) for $10.5. A trader could exploit this arbitrage by buying the stock on the SGE and immediately sell the same shares on the IDX.

Bear market (n.)

What is it?

If you’ve heard of the banking term bear, you can most likely guess what a bear market is. A bear market is any market where securities prices exhibit a declining trend for a prolonged period. Because bears attack by clawing down, this term is associated with a falling market.

Example:

The recession following the great Wall Street stock market crash in 1929 can be referred to as a bearish market. With investors struggling to get out of the market by selling their stocks, the market incurred huge losses which led to a sustained decline in the economy, known as the Great Depression.

Coupon (n.)

What is it?

No, it’s not the coupon you redeem. In banking terms, it is the annual interest rate due on a debt product, such as a bond or a loan. Not quite as happy as the other kind of coupon to receive!

Example:

A $1,000 bond with a coupon of 5% pays $50 a year. Quite often, these interest payments will be semi-annual, whereby the investor will receive $25 twice a year.

Deductible (n.)

What is it?

The amount of money an insured individual pays before the insurance kicks in.

Example:

Imagine your deductible is $500, and you incur medical expenses for $2000. You pay the $500, and your insurer pays the remaining $1500. However, if your entire medical bill is $500, you would pay the entire amount and your insurer will pay nothing.

Elevator Pitch (n.)

What is it?

A brief speech that outlines an idea for a product, service or project. The speech is delivered in a short period of time – as short as an elevator ride which is usually about 20-60 seconds.

Example:

If you’re looking to market on why your product is worth investing in, you would want to use an elevator pitch to get straight to the point to capture the client’s attention.

Fixed Term (adj.)

What is it?

It is to describe an investment vehicle, usually in the form of a debt instrument, which has a fixed time period of investment. Fixed-term investment involves the investor parts with his or her money for a specified period of time and is later repaid his or her principal investment at the end of the investment period.

Example:

A term deposit is an example of a fixed-term investment where investors deposit their funds with a financial institution for a specified duration and they’re not allowed to withdraw those funds until the end of that duration.

Ghosting (v.)

What is it?

Ghosting is an illegal practice where in which market makers collectively attempt to influence the price of a stock. Corrupt companies do this so they can profit from the price movement.

Example:

A firm buys or sells large amount of a certain stock with a second firm doing the same causing a buy or sell frenzy. The two firms ghosting who are supposedly competitors can then profit as the market is unaware of their collusion.

Honeypot (n.)

What is it?

A honeypot is a security measure used in banking security to detect, prevent and dismantle cyber-attacks by luring the perpetrators to a specific area of a computer system.

What does honey have to do with this? The term is coined from the idea of a bear stealing honey from a honey pot, and honeypot is in turn used as a temptation for the bear.

Example:

Banks are laying traps for cybercriminals that are trying to hack into their information systems using honeypot software.

Indemnity (n.)

What is it?

A principle where the insurer seeks to place the insured in the same position after a loss as he or she occupied immediately before the loss.

Example:

The insurance company agrees to indemnify (used as a verb) the policyholder against any claim arising from a breach of professional duty.

Jointly and Severally (adv.)

What is it?

A legal term that describes the liability of a group of people bound together by an agreement, often in the context of a loan. In short, all parties to a contract are obligated to perform all of the actions required under contract, with any proportionality.

Example:

If a bank loans $500,000 to three people jointly and severally, then all three individuals are responsible for repaying the total amount of the loan to the bank.

Keep and Pay (n.)

What is it?

An allowance that lets a bankrupt individual keep an asset provided that he or she continues to make payments.

Example:

Keep and pay allows you not to have your home repossessed although the bank could liquidate the asset if necessary.

Lapse (v.)

What is it?

The non-renewal or cessation of a privilege, right or policy as a result of inaction.

Example:

An insurance policy will lapse if the holder does not pay the premiums.

Personal details

First name *

Last name *

E-mail *

A valid e-mail address. All e-mails from the system will be sent to this address. The e-mail address is not made public and will only be used if you wish to receive a new password or wish to receive certain news or notifications by e-mail.